COMPENSATION

Presented By Hardik Bhavsar Rahul Samant Roshith G K

Compensation Management
What

is compensation management Compensation Management is designing and implementing total compensation package with a systematic approach to providing value to employees in exchange for work performance, Compensation is a systematic approach to providing monetary value to employees in exchange for work performed. Compensation may achieve several purposes assisting in recruitment, job performance, and job satisfaction.

Compensation Management
Its

importance

Compensation is an integral part of human resource management which helps in motivating the employees and improving organizational effectiveness. Effectiveness in terms of:

Attracting & Retaining Talent Motivating talent for better performance Cost effectiveness

Compensation Management
Its

importance
Image Building Ensure Equity

Institutional effectiveness Effective Compensation

Legal Compliance
Administratively Efficient

Attract talent

Motivate & Retain Staff

Reward Valued Behavior

Employee Management

Compensation Management
Its

importance
HIGH COMPENSATION LOW COMMITMENT HIGH COMPENSATION HIGH COMMITMENT

Hired Guns
LOW COMPENSATION LOW COMMITMENT

Professionals
LOW COMPENSATION HIGH COMMITMENT

Workers as commodity

Family oriented organization

Compensation Management
Its

importance

Elaboration. And discussion

Compensation Management
Types

of Compensation

Compensation Management
Types

of Compensation

Direct

compensation It refers to monetary benefits offered and provided to employees in return of the services they provide to the organization. The monetary benefits include basic salary, house rent allowance, conveyance, leave travel allowance, medical reimbursements, special allowances, bonus, PF/Gratuity, etc. They are given at a regular interval at a definite time.

Compensation Management
Types

of Compensation

Indirect

compensation It refers to non-monetary benefits offered and provided to employees in lieu of the services provided by them to the organization. They include Paid Leave, Car / transportation, Medical Aids and assistance, Insurance (for self and family), Leave travel Assistance, Retirement Benefits, Holiday Homes.

Compensation Management
Constituents Wage
The

of Compensation CTC, heads

and Salary:

most important component of compensation and these are essential irrespective of the type of organization Administered individually Provides employee stabile income and can plan chores of daily life, budget

Incentives:
Incentives

are the additional payment to employees besides the payment of wages and salaries. Often these are linked with productivity, either in terms of higher production or cost saving or both. Can be administered individually and for groups Additional compensation having immediate effect and no future

Compensation Management
Constituents Fringe
Fringe

of Compensation CTC, heads

Benefits:

benefits include such benefits which are provided to the employees either having long-term impact like provident fund, gratuity, pension; or occurrence of certain events like medical benefits, accident relief, health and life insurance; or facilitation in performance of job like uniforms, Canteens, recreation, etc. Administered for a group mostly

Perquisites:
These

are normally provided to managerial personnel either to facilitate their job performance or to retain them in the organization. Such perquisites include company car, club membership, free residential accommodation, paid holiday trips, stock options, etc. Administered individually mostly

Compensation Management

Purpose of Compensation
BUSINESS STRATEGY PEOPLE REQUIREMENT

Compensation Management

Compensation Management

Purpose of Compensation

For Employer

Brand image (employer of choice) for attracting candidates Motivating employees for higher productivity and performance Retaining talent Consistency in compensation Provoking healthy internal competition

For Employee

Work-life Balance Recognition as tool to self esteem Planning for better quality of life

Compensation Management

Factors affecting Compensation

Mental requirements, Physical requirements, Skill requirements, Responsibility level, and Working conditions (risk, time, hazards)

Compensation Management

Factors affecting Compensation

Organizational Affordability

Man power planning Sales salary ratio

Market Rate for Talent Economic Conditions

Compensation Management

Inputs in Compensation Structure Job Evaluation

Job Specification Job Description Time and Motion Study

Market Survey

Compensation Management
Laws

governing and affecting Pay Structure

Minimum

Wages Act (discuss minimum remuneration, its heads Income Tax Act (discuss heads which provide tax relief) Equal Remuneration Act Payment of Wages Act (discuss permissible deductions) Acts on social securities (PF, Bonus, Gratuity, Employee Compensation)

Compensation Management
Anatomy

of Pay Structure Monthly salary components

Salary Dearness Allowance House Rent Allowance Conveyance Allowance Others (Shift Allowance, Uniform Allowance, Education Allowance)

Compensation Management
Anatomy

of Pay Structure Incentives

based incentive Production based incentive Task based incentive

Compensation Management
Anatomy

of Pay Structure Social Security / Statutory payments

towards Provident Fund Contribution towards ESI Payment of Bonus Payment of Gratuity (not part of wages but considered part of CTC)

Compensation Management
Some
The

interesting comparisons

salary of top executives of public sector are miserable compared to private sector . S B I of India chief is paid 10%of HDFC Bank Managing Director BHELS chief gets about 10 to 12 lakhs per annum as against ABB S MD getting nearly 40 to 50 lakhs

Compensation Theories

Theory Behind Compensation

Equity Theory

Comparing inputs and outputs of a similar coworker Perceived inequity affects employee effort

Equity Theory
Workers compare their compensation with others If unequal workers attempt to restore equity

Equity Theory

Inputs
factors considered by the individual that contribute to their work knowledge, skills and abilities

Outcomes
- factors considered by the individual to have personal value - money, promotion, praise
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Internal Equity

Comparison of Jobs Jobs worth to the Employer Similarities and differences in work content Relative contribution to organization objectives Accomplished through job evaluation

External Equity

Value of the job to the labor market Assessed through wage surveys

Individual Equity
Relative pay between individuals doing the same job Influences motivation

Workers Restore Equity by:

Reducing input Attempting to get raise Psychological Adjustment

Equity Theory

Strengths - predicts behavior in underpayment conditions Weakness - does not predict overpayment conditions - does not account for individual differences impact upon equity
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Expectancy Theory

Expectancy Theory

People are motivated by intrinsic and extrinsic outcomes they desire. People will only be motivated if outcome is possible. People will only be motivated if outcome is contingent.

Subsistence theory

According to this theory, wages tend to settle at a level just sufficient to maintain the workers and his family at minimum subsistence levels
The theory applies only to backward countries where labourers are extremely poor and are unable to get their share from the employers

Standard of living theory:

According to this theory, wages are determined not by subsistence level but also by the standard of living to which a class of labourers become habituated.

Wage fund theory:

After rent and raw materials are paid for, a definite amount remains for labour.
The total wage fund and the number of workers determine the average workers share in the form of wages.

Compensation

Cash, Bonuses, Insurance, Vacation, Holidays Perks, Recognition

Role of compensation in enterprise management

Competitive pay

Human resources
An investment view of payroll costs

OBJECTIVES
Internal Equity Internal equity deals with the perceived worth of a job relative to other jobs in the organization
External Equity External equity deals with the issue of market rates for jobs

Individual Equity Individual equity deals with how individuals perceive how they are being paid relative to other individuals within the organization and perhaps within the same position Performance Incentives A significant element of a base pay program is to encourage higher or increased levels of employee performance.

Maximum Use of Financial Resources

Since an organization does not have unlimited financial resources, the management needs to be design the base pay program to maximize the value to the organization with minimum use of these limited resources

Compliance with Laws and Regulations While not the primary objective of a pay program, one of the objectives of the management is to see that a pay program is kept in compliance with various state and central laws and regulations

Administrative Efficiency Due to the limited financial resources in an organization, one of the objectives of the management is to be to have a pay program that is easy to administer, flexible, and costeffective

A sound Compensation program should strive to meet the following objectives

Serve all stakeholders

Be simple Identify compensation needs

Group employees properly Include a process for developing a compensation program

Reflect company culture and values

Cont

Process for Developing a Compensation Program

1) Identify needs, problems or opportunities, focusing on such methods as

Data analysis Reported issues Discussion with managers Discussions with employees Personnel audits

2) Develop objectives

Set specific goals Consider impact on other human resource management programs Consider resources available

3) Conceptualize the answer early in the work and at first as a broad sketch considering:

Company Company Company Company

characteristics practices culture reactions

4) Testing the specific program design which may involve: Legal tax and accounting considerations what if gaming and modeling Comparative analysis with alternative answers Evaluation against company plans and forecasts

5)Implementation 6)Evaluating the effectiveness of the program

7)Review